Fund of Information

The Case for Compact Funds

Focused mutual funds can do exceptionally well—or fail spectacularly.

When Bill Nygren launched Oakmark Select in 1996, a mutual fund with just 20 holdings defied the conventional wisdom on diversification.

Yet, as Nygren saw it, most investors owned multiple funds, often within the same category, with too many holdings. "We've had it drummed into our heads that diversification is good, but not if you're paying active-manager fees for something that ultimately looks just like the index," says Nygren, who traveled to investor presentations with a stack of dot-matrix printer paper...